Group Chat: The Ins and Outs of Corporate Earnings Calls

It’s often said that, the more informed you are as an investor, the more effective you can be in meeting your objectives. And one of the ways to stay on top of all the happenings in the companies you follow is to listen to their earnings calls.

According to the Securities and Exchange Commission's (SEC) Regulation FD, an earnings call is a crucial part of a public company’s requirement to disseminate all “non-public material information” to market professionals and shareholders. The regulator has even gone so far as to issue specific recommendations for how earnings calls should be announced and conducted.

From the SEC:

We believe that issuers could use the following model, which employs a combination of methods of disclosure, for making a planned disclosure of material information, such as a scheduled earnings release:

Second, provide adequate notice, by a press release and/or website posting, of a scheduled conference call to discuss the announced results, giving investors both the time and date of the conference call, and instructions on how to access the call; and

Third, hold the conference call in an open manner, permitting investors to listen in either by telephonic means or through Internet webcasting.

These recommendations are designed to ensure that all market participants—both professionals and individuals—get access to the same information at the same time to help prevent market abuses such as insider trading and front-running.

Smile and Dial, and Listen In

Earnings calls are generally conducted four times per year, and most widely followed companies hold theirs during “earnings season,” which generally starts two weeks after the end of each quarter (December, March, June, and September). You can find a list of upcoming calls by checking an earnings calendar like the one offered by TD Ameritrade.

Calls are open to the public and can be accessed in real time via a dial number or the Internet. Some companies even go so far as to live-stream their calls. In either case, they usually begin with an introduction, often done by the head of investor relations, who will then read a “safe harbor” statement limiting a company’s liability in the event that their financial results turn out different from what they are projecting.

At that point, the call will be turned over to one or more company officials, usually including the chief executive officer, chief operating officer, and chief financial officer. They will then review the financials from the recently concluded quarter as well as give guidance for the upcoming quarters.

When they’re done, the call is opened to questions from analysts, financial journalists, major shareholders, and occasionally, the investing public. Both those in attendance as well as those accessing the call remotely can sometimes submit questions.

Uncrossing the Wires

In most cases, the bulk of an earnings call will be a recap of information that has already been made public in an earnings release—usually done 30 minutes to an hour beforehand. This recap is the equivalent of “play by play” commentary in a sporting event, but the savvy investor will want to listen closely to catch what might be described as the “color commentary.”

For example, say you read an earnings release from an apparel company whose stock you own. You may see that they’ve increased their sales from the previous quarter, which would generally be considered good news and might make you feel comfortable in holding your stock.

If you listened to the actual earnings call and heard the CEO explain that those increased sales numbers are coming from newly launched international stores, you might conclude that those stores will become a driver for earnings growth in the future and consider adding to your position.

Conversely, a company might disclose things on a call that make you bearish, like a product line being discontinued or a key member of the management team leaving, in which case you might consider selling.

Monitoring earnings calls can be a powerful way to make sure you get all the information you need on the companies that make up your portfolio. And don’t worry—if there’s an earnings call you’re interested in but it doesn’t fit into your schedule, they’re almost always archived in the investor relations section of a company’s website, where you can access them on demand.

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